Croatia adopts the euro: what changes for the country?
On January 1, 2023, approximately 4 million Croatian kuna left the euro for the euro, their country becoming the 20th country to adopt the single European currency in hopes of making its economy stronger and more stable and improving the living standards of its residents. .
Habits to adopt
This development in the Zagreb market distinguishes: “I’m happy with the change, it’s something new” turns on the young woman. “Increasing prices is not true” assures the old man. “Maybe they got a few cents, but it’s nothing” believes Another says for his part: “The prices are a bit too high; I have no problem converting, you just have to have the money!” The old woman adds:We were not satisfied, we preferred our little day. “When we don’t have our own currency, I think we are not a real country.” he says.
45% of Croatians already had a euro account for large expenses, but all need to get used to the single currency for everyday purchases. “It’s hard for seniors to calculate how much the prices are in euros, but we have a dual screen so it’s easy to navigate” Ana Knežević, president of the Croatian Consumer Protection Association, shows the stalls of the market.
“Croats don’t have many resources”
55% of Croatians are in favor of adopting the euro, according to the Eurobarometer, even if the oldest people stick to the kuna. But more than 80% of them are afraid of price increase.
“The prices of coffee and bread are more expensive than on January 1” Ana Knežević notes that she is concerned about rising living costs, especially for the most vulnerable.
“People don’t have much opportunity: food is very expensive, heating, electricity is also very expensive, so it’s very difficult to get.” explains before adding: “Croatia is a small country, pensions are not high, so you can imagine how people live.”
Watch for price manipulation
Due to the transition to the euro, all products and services in Croatia are now bought and sold in euros. The kuna conversion rate is fixed: 1 euro equals 7.53 kuna.
Coins and banknotes in the old currency can be exchanged at Croatian banks without commission. Symbolically, this symbol was taken on a Croatian one-euro coin to refer to the old kunai, which featured a marten.
Businesses must display prices in both currencies by the end of 2023, with the aim of making the transition more transparent.
Fearing that some daily consumer products will become more expensive, consumer associations will hunt for price manipulation.
Simplification for exporting companies
The arrival of the euro and the opening to the Schengen zone is an important advantage for economic sectors such as tourism, which accounts for 24% of GDP, while industry, which accounts for 12.1%, is also important, according to the Croatian Chamber of Commerce. Export sector for Croatian economy.
The Konchar group operates in the fields of energy, infrastructure and rail transport, for example. The company exports more than 60% of its products, 70% of them to the euro zone countries.
“For the past 21 years, our currency, the kuna, has been pegged to the euro, so we can’t say that the change will be huge, but we think it will be easier for our business as our customers will easily understand our offerings. ,” the CEO of the company, Gordan Kolak, believes. “When it comes to productivity, modernization of production, digitization, all these areas are more important to us than the euro as a currency.” adds.
In 2020, more than 70% of goods were exported in euros, and only 16% of goods were bought in US dollars.
“a good thing” For foreign direct investment and tourism, according to the chairman of the Croatian Central Bank
For a country where the single currency is already well integrated, adopting the euro seems natural. Croatia’s GDP is projected to grow by 6% in 2022, but forecasts for 2023 are only 1%, partly due to high inflation.
We collect the views of the head of the Central Bank of Croatia, Boris Vujicic, on the transition to the euro. “I am glad that we are completing a project that started almost five years ago, which will bring more stability to the Croatian economy, make it more attractive for foreign direct investments, and lower operating costs.” congratulates himself.
“It is also important because we are a tourist country and 70% of the tourists we receive are from Eurozone countries, so in many ways this is a good thing for Croatia.” he says.
“Essential in times of crisis”
Boris Vujčić believes that despite the current inflation in the eurozone, now is the right time to move to the single currency. “If we could have done it earlier, it would have been better.” he assures. “It is especially important for a small open economy like Croatia to be in the euro zone during the crisis” notes.
“When we look at some of our neighbors who are members of the European Union, but are not currently part of the euro zone, they have been under great pressure in the currency market this year after aggression against the United States. “Ukraine” he said. “In Croatia, we have not experienced any pressure on the currency market and we have not been subject to interest rate increases like these countries.” indicates.
“So we are already seeing the benefits of this adoption as markets are pricing in us entering the eurozone early this year.” is happy
The head of the Central Bank of Croatia notes that his country does not give up the possibility to set its own interest rates. “Basically, for the last 30 years, our monetary policy has been based on pegging our exchange rate to another currency, first to the Deutsche Mark and then to the Euro.” remembers “But when you peg your exchange rate to the euro, you have free movement of capital.” Continue, “You can’t really have an independent interest rate policy. So actually it would be like losing something that we didn’t have to begin with.” notes.
Structural reforms should be carried out
We ask Boris Vujčić what the difficulties are with the flow of large amounts of money into the Croatian economy, for example into the real estate market. “There is no overheating of the economy” indicates. “But what you’re seeing is that the real estate market is tight, prices are going up right now, and I think we’re going to see a downturn in the real estate sector next year with interest rates going up.” warns. “The only thing that will not change is foreign demand, which should actually increase; today we see that about 20% of real estate purchases are made by foreigners, so we will be even more attractive.” declares.
Finally, the governor knows there are still challenges ahead. “I believe that the adoption of the euro is not a miraculous solution that will solve our structural economic problems. indicates. “Now we need to focus on such reforms, which we still need to implement with the help of the better economic environment created by joining the euro and the Schengen area.” he concludes.